June 4, 2012

Online Products Task Force Holds Public Forum

On May 30, the Online Products Task Force (the “Task Force”) convened its initial public forum, which was attended by a member of Goodwin Procter’s Gaming, Gambling & Sweepstakes Practice. The highlights of this meeting are summarized below.

The objective of the meeting was to allow the public to contribute comments on the future of online lottery and gaming products in Massachusetts. The Task Force, in collaboration with its consultant, Spectrum Gaming Group, has been tasked with assessing the short- and long-term fiscal and societal implications of online products in Massachusetts and is preparing a report that will be issued in the fall. The Task Force consists of 20 members and is led by State Treasurer Steven Grossman, who is also the chair of the Massachusetts State Lottery Commission.

This was the first opportunity for the public to exchange ideas with the Task Force, as the Task Force’s regularly scheduled meetings are held in private. The following Task Force members were present: Treasurer Steven Grossman, Al Gordon (Office of the Treasurer), Cathy Judd Stein (Massachusetts State Lottery Commission), Paul Sternburg (Massachusetts State Lottery Commission) and Jamie Tesler (Office of the Treasurer). They were joined by Beth Sullivan, Eugene Johnson and Michael Pollack of Spectrum Gaming Group.

Opening Remarks

In his opening remarks, Treasurer Grossman stressed that Massachusetts has the “most successful lottery in the United States by almost every metric,” with, by far, the highest per capita lottery sales. If the lottery were a private organization, it would be the eighth largest in Massachusetts. Treasurer Grossman emphasized that the state lottery’s success is owed to the 7,400 lottery agents in Massachusetts and said that the most important priority is to protect the lottery.

Treasurer Grossman then said a new phenomenon in Massachusetts must be recognized: the gaming legislation that was passed in the fall of 2011, in conjunction with the important decision that was issued by the Department of Justice indicating that lotteries can sell lottery products online to in-state adults. This has opened a new avenue of competition. While it is not a given that Massachusetts will enter the online marketplace, Treasurer Grossman said, “we have a public obligation to explore this avenue.” Treasurer Grossman concluded by indicating that this will not be an easy decision as there are issues about which to be concerned, such as problem gaming and security.

Public Comments

Anti-Online Gaming

The large majority of attendees came to speak against allowing lottery sales online. Individuals came from the New England Convenience Stores Association, the Massachusetts Package Stores Association, and individuals who work at and/or own various 7-Eleven, Cumberland Farms and Tedeschi franchises. The comments from these individuals included the following:

  • The partnership between the Massachusetts State Lottery Commission and the lottery agents would erode with the introduction of online lottery products, and the lottery agents would then be in direct competition with Massachusetts.
  • The loss in lottery sales to convenience store owners and liquor store owners due to the introduction of online products will cause mass layoffs and result in a higher unemployment rate. “The introduction of online products could create a jobless casino industry,” when the gambling legislation was passed to create jobs.
  • Lottery ticket sales are a huge part of the revenue of convenience stores, bringing in anywhere from 25%-53% of their revenue. This makes lottery ticket sales the number-1 or number-2 source of revenue for most convenience stores. Lottery ticket purchasers also end up buying ancillary products while in the convenience stores.
  • There was a consensus that the technology would not be able to properly verify individuals’ ages or address problem gambling the way these issues are addressed with person-to-person interaction.
  • People have a finite amount of money that they can spend on gaming so, if online products are introduced, that is money that will come directly out of that which is currently given to local business owners. The 5% commission will go to online banks instead of the local business owners.
  • The concern that other states who opt for online products will cut into the Massachusetts lottery revenue is unfounded, as only one state has introduced online lottery products so far (Illinois) and the online play is restricted to individuals within the state.

Pro-Online Gaming

Two individuals voiced their support of the introduction of online gaming products in Massachusetts. They were Tim Lowe, Executive Director of the Massachusetts Digital Games Institute, and a representative from the Cambridge Interactive Development Corporation.

  • Tim Lowe indicated that he is already beyond online gaming and thinking about mobile gaming — there are 4 billion mobile phone users and 1 billion of these people use smart phones. He said that this is a strategic opportunity for Massachusetts and that online/mobile gaming can strengthen the existing partnership between the lottery and the lottery agents. He suggested selling prepaid online lottery cards or accounts at retail locations. He also indicated that the technology exists for age verification and other security issues, so that there should not be concern over these items.
  • The representative from Cambridge Interactive Development Corporation echoed these sentiments. He added that, when discussing the effects of online gaming on the job market, one has to consider the job creation that would occur in the technology sector if online products were introduced — people will be needed to develop the games, test the integrity of the games, support the platforms, etc. He also indicated that there is no evidence that online vendors would take business from lottery agents or land-based casinos, as it’s a very different type of person who would play at home versus going to the casino or purchasing scratch tickets from lottery agents. Those who value the in-store or in-casino relationship will continue to go to the stores and casinos.

Legislative Approval Required to Act

Paul Sternberg of the Massachusetts State Lottery Commission indicated that the report being created by the Task Force will include a recommendation, but that the Lottery Commission cannot act without legislative approval.

A second public session is scheduled for June 28 from 5-7 p.m. in Western Massachusetts, specific location TBD.

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Those interested in learning more about Goodwin Procter’s gaming and gambling expertise and practice, and/or the items above, should contact David Apfel or Bob Crawford, co-chairs of Goodwin Procter’s Gaming, Gambling & Sweepstakes Practice.